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Determining Cost Relationships Midstate Containers Inc. manufactures cans for the canned food industry. The operations manager...

Determining Cost Relationships

Midstate Containers Inc. manufactures cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enameling the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the stell can stock was increased for every month, from April to September. The following operating reports were available from the controller:

April May June July August September
Materials $14,000 $34,800 $33,000 $21,700 $28,800 $33,000
Energy 13,000 28,800 24,200 14,000 17,100 16,000
Total Cost $27,000 $63,600 $57,200 $35,700 $45,900 $49,000
Units Produced ÷ 50,000 ÷ 120,000 ÷ 110,000 ÷ 70,000 ÷ 90,000 ÷ 100,000
Cost Per Unit $0.54 $0.53 $0.52 $0.51 $0.51 $0.49

Differences in materials unit costs were entirely related to the amount of tin content. In addition, inventory changes are negligible and are ignored in the analysis.

A) Calculate the Total cost per unit for each month. Round your answers to the nearest cent

Total Cost Per Unit
April ?
May ?
June ?
July ?
August ?
September ?

B) Interpret your results

The calculations reveal that the tin content and energy costs are _________ related. That is, as the materials cost increased due to higher tin content, the energy costs ________ by more. Thus, the recommendation should be to __________ raw can stock with the tin content at the $0.33-per-unit level (September level). This is the material that __________ the total production cost for this set of data. Additional data could be used to determine the optimal tin content or the point where energy cost savings fail to overcome additional material costs.

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ekkarill92 answered 4 months ago
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